Question
Suppose that a firm's recent earnings per share and dividend per share are $2.60 and $1.50, respectively. Both are expected to grow at 12 percent.
Suppose that a firm's recent earnings per share and dividend per share are $2.60 and $1.50, respectively. Both are expected to grow at 12 percent. However, the firm's current P/E ratio of 16 seems high for this growth rate. The P/E ratio is expected to fall to 12 within five years.
Compute the dividends over the next five years.(Do not round intermediate calculations. Round your final answer to 3 decimal places.)
Dividends YearsFirst year$___Second year$_____Third year$_____Fourth year$_____Fifth year$______
Compute the value of thisstock price in five years.(Do not round intermediate calculations. Round your final answer to 2 decimal places.)
Stock price$______
Calculate the present value of these cash flows using a 14 percent discount rate.(Do not round intermediate calculations. Round your final answer to 2 decimal places.Present value$_____
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